Timeshare Sales and Right of First Refusal

When you’re buying or selling a timeshare, the “Right of First Refusal” (ROFR) clause in many timeshare contracts could affect you. What is this, how does it work, and what does it mean for you? (Spoiler alert – it’s probably not good…)

What is “Right of First Refusal”?

ROFR is a clause in your timeshare contract that states that the company that sold you the timeshare has the right to get it back under certain conditions.

And you, and you…

If you enter into an agreement to sell that timeshare to a third party (Buyer X), then the company has the “right of first refusal” on that contract. That means they get to accept or refuse that agreement first, before the deal with Buyer X can go through.

If the company wants your timeshare, then they exercise their Right of First Refusal, and they become the buyer. You still end up selling at the agreed price, except that you’re selling it back to the company. The deal with Buyer X is dissolved, and they get back whatever they’ve paid.

If the company doesn’t want your timeshare at the price you agreed with Buyer X, then they refuse it. Your sale to Buyer X passes the Right of First Refusal, and that deal goes through.

How ROFR can benefit the company

Let’s say you own a timeshare at a resort where the company still has an active sales department. Here’s an example of how the Right of First Refusal scenario plays out in their favor.

They’re selling timeshares at full retail prices. Let’s use $30,000 as an example.

You’re selling your timeshare as a resale, and resale prices are typically quite far below the original retail. Let’s say the going resale price for yours is $3,000.

When you find a buyer for your resale at $3,000, the company can step in and purchase it for that price.

They can then resell that $3,000 timeshare for the $30,000 retail price. Nice profit, right? In theory, they could do this over and over again as consumers buy and sell the same timeshare.

Buying up resale timeshares gives the company a cheap way to boost their available inventory of timeshares to sell. Why go through the lengthy and expensive process of getting property, designs, permits, and building new resorts, when you can pick up inventory to sell so much easier using ROFR?

Remember, it’s not like a used car that’s fundamentally different once a prior owner has used it for awhile. There’s really no difference between the resale and retail timeshares at that same resort. There may be certain side benefits you get with retail, but the actual units and resorts are still the same. (See Timeshare Resale Limitations).

It’s not like cars, where a used car will never be new again

How ROFR affects you as a timeshare buyer

Just like many things in the world, this rule is created to benefit the company, not you. If you’re buying a timeshare, this can cause you some issues.

Uncertainty. Even if you win a bid on a timeshare on eBay, or agree to purchase a resale timeshare via another channel, you still don’t know whether you’ll actually get it or not. After you agree on the price, the contract has to go to the company for their Right of First Refusal. Will you get it or not? Wait and see.

Slower process. The extra step of ROFR in a timeshare sale slows down a process that was already pretty lengthy to start with. There’s no fixed amount of time, but it’s common for the ROFR review to take a month, sometimes more.

Ties up your funds. Let’s say you find a timeshare you want, and agree on a price with the seller. You put money into escrow to move forward with the buying process. If you find out three months down the road that the deal was killed due to the company exercising ROFR, then you get your money back, but it’s been tied up in the meantime.

May take multiple deals. If your deal to buy a timeshare falls through due to ROFR, then you’re back to square one. You need to go through the process of finding and researching another deal, and reaching agreement on price. Once you do, then you’re back to the uncertainty… will the deal go through or not?

Wasted time and opportunities. Losing a deal to Right of First Refusal means that the time you invested in that deal is lost, as well as other opportunities you could have pursued instead.

AND THE WINNER IS… The woman in row 2… Or maybe not…

How ROFR affects you as a timeshare seller

Keeps prices up? Salespeople sometimes tout this as an advantage, claiming that the ROFR will protect your investment by keeping the market value of your timeshare high. Does it really? That’s a bit iffy.

… Market forces determine the prices – there’s nothing in this that guarantees you any selling price. If people in the marketplace aren’t willing to pay more than $1 for your timeshare, having an ROFR clause in the contract isn’t going to change that. You won’t get a dime more than the market will pay.

… Knowledgeable buyers may figure out that only bids of $5,000 or higher will pass ROFR, and bid that high in order to buy your timeshare. In this case, the ROFR may live up to its claim, but only to the extent that buyers in the marketplace see that much value in it.

Slower process. Once you have the agreement to sell your timeshare for a certain price, you will get your money eventually (from either the company or Buyer X), but the ROFR step slows down the overall process.

Wary buyers. Any buyer who’s already been burned once by the ROFR process may be more reluctant to go through that again, tying up their funds for months of uncertainty. This decreases your pool of potential buyers because some will avoid going through that process.

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How often is this right exercised?

When the economy tanked during the great recession, there was a glut of timeshares on the market, as people struggled with unemployment and foreclosures. ROFR was not much of a factor then, since companies had seen their sales plummet. They had little motivation to increase their inventory by buying back timeshares.

As the economy has improved, some companies have been ramping up their buybacks using the Right of First Refusal clause. Examples include both Marriott and Hilton, who have been quite active in this recently.

In fact, Marriott Vacations Worldwide in their 2013 Second Quarter Financial Results, cited “lower cost of vacation ownership products” as one of the factors in the dramatic increase in their margins. As one of the more active companies using ROFR, it’s easy to see how active buybacks could lower their costs.

In general, the greater demand for your timeshare, the more likely it is that the company will use ROFR. For instance, a company may be actively buying Platinum season resales with ROFR, but not Silver season.

Other companies rarely exercise this ability, even though they do have that right included in contracts. Why not? Surely they’ve run the numbers, and determined it’s more beneficial for consumers to continue owning those timeshares and paying the fees, than for the company to get the inventory back to resell.

Comments? Questions?

Have you ever bought or sold a timeshare that involved a Right of First Refusal? What was your experience with the process? Did it work out well for you or not? I’d love to hear from you in the Reply section below.

~~~~~~~~~~~~~~~~~~~~~~~Buying a timeshare can be a wonderful way to get fun, cost-effective vacations. On the other hand, you do need to know what you’re doing because there are plenty of potential pitfalls. Check out our Consumer Awareness Guide to Buying a Timeshare to learn how to avoid the problems and get a good deal on a timeshare. It’s free, and could save you a bundle.
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14 Comments

Timeshares are generally sold in a high-pressure environment, and most advantages the sales people tout are illusory. You are promised a cheap vacation for the family, but you probably can rent a similar unit for less. You are told you can swap your unit in other parts of the country for the same quality. However, you may not be able to arrange the place and time you want. By contrast, if you rent, you can select any location when you choose

Hi Betzabeth – You’re right about the high-pressure sales, and skewed presentation of the advantages during the sales process. And sometimes it is possible to rent a similar unit for less, but by no means is that always the case. We take many timeshare vacations each year that give us quality accommodations for far less than we’d pay to rent something comparable. You just need to learn the tricks on how to make the most of it. That’s why I started this website – to help people do just that. Thanks for stopping by!

Timeshares need to be looked up as a purchase and not an investment. Regardless of how timeshares are presented, they don´t perform as well as a house or stock investment. If you look around the resale market for timeshares on websites like EBay, Redweek, or TUGBBS will find that you can buy a timeshare for far less money than what the first owner purchased it for.

Thanks for the comment, Emilie! You’re absolutely right that timeshares should not be viewed as an investment like other real estate. If you want to get one, consider you’re buying it for the use of it & benefits it brings, not as an investment. As you point out, buying resale can get you much better deals. Our consumer awareness guide offers more info that people should be aware of before buying any timeshare.

Hi, recently pressured into selling time share to another place but regretted it when we got home. Rescind period was over a day or so when we arrived home. We do not want this other time share but want to keep our original. Sales guy said there is a six mo.ROFR. What steps should we take to keep (not sell) our older time share and cancel the new contract? Sick and in tears over this whole mess.

Hi Michelle –
I’m so sorry to hear about your situation!! I really hate the high-pressure techniques they use to bully people into deals they regret later. It’s not my idea of how a quality business should run. Anyway, so sorry you’re in a bind with this!

As for what steps to take, this probably depends on how your contract(s) are set up. Take a look through your paperwork, and see how it’s set up. Do you have 2 separate contracts, one to buy and one to sell? Or is it all tied together into 1 deal? Or is one contract conditional on the other?

Generally, when you’re buying a TS, you have only the rescission period to get out of it easily. On the other hand, when you’re selling a timeshare, the original TS company has the right to exercise their ROFR. 6 months sounds like a long time to me, but that should be listed in the original contract docs from your first TS. Did they say what happens if your original TS goes into ROFR? How does that affect your purchase deal?

I’d suggest that you have a lawyer (preferably one who is familiar with timeshares) review your contract documents, and advise you on your options. If the whole thing is pending completion of your timeshare sale, then perhaps there’s a way out of it before that happens.

Hi Lydia –
Thanks for your suggestion! I will look into how to do that. As for the info on the site, posts like this one are generally applicable to the industry, and remain true for many years (or probably decades). They aren’t going to expire. On the other hand, some posts like special deals are very time sensitive.
Hope that helps! – Deanna.

My issue is with their exercising first right of refusal on a GIFT timeshare. My pastor tried to give me his points becuase their family is now too big to use them. I have a small bluegreen package. When Bluegreen saw the request come thru as a gift with zero dollars exchanged, they said they were exercising first right of refusal and are claiming the points back for NOTHING. So now he has 10 thousand annual points that they are saying he gets NOTHING for and I don’t get the gift. That has to be illegal. There was no contract for them to take over or honor since not a dime changed hands.

Hi Carol –
Yikes! I have never heard of them exercising ROFR with a gift, and claiming the timeshare for free. I’m so sorry you ran into this! )-:

Do you or your pastor happen to know a lawyer who could look over the paperwork and advise you on the legality of the transaction? Aside from that, I don’t know what your other options are. Personally, I would have thought that gift transactions or inheritances would be exempt from ROFR, but it all depends on how it was written in the documents.
Thanks for reporting the issue, and good luck with it! – Deanna.

I would suggest that the Pastor be look at his contract. When did he purchase his timeshare? Was it prior to 2008?
As I understand, Bluegreen has not always had the first right of refusal in the contract. Also Bluegreen is now owned by BFC financial.

It seems to me, that more and more timeshare companies are exorcizing FROR since the economy collapsed in 2008.
If they did not have it in writing in the contract then it does not apply to you.

I signed up to take a free timeshare from Timeshares 4 Free. I did not pay anything for it, I just signed the papers to have it put in my name. The company claimed the timeshare through their Right Of First Refusal. I am pretty sure the clause was not on the original contract. Should I contact someone to check on this?